USD/JPY Fundamental Forecast – February 1, 2016

The USD/JPY soared 1.38 to 120.19 after lackluster economic data and a shift away from the safety of the yen. The Bank of Japan adopted a negative interest rate policy on Friday (Jan 29), while reiterating its pledge to maintain the current pace of increasing its monetary base by 80 trillion yen a year.
The decision to put an interest rate of -0.1 per cent on current accounts held by financial funds at the central bank was made in a five-to-four vote. It was a surprise for market analysts who were largely expecting the central bank to take no action.
"The BOJ will cut interest rates further into negative territory if judged as necessary," Reuters reported, citing a statement from the central bank. No changes were made to the bank's government bond purchases or exchange-traded funds (ETFs).
Following the announcement, the benchmark Nikkei 225 index swung into positive territory, up as much as 3.21 per cent at one point. The dollar rose against the yen to fetch 120.50 yen, compared with 118.65 yen before the decision.
Friday's unexpected decision will likely add to BOJ Governor Haruhiko Kuroda's reputation of "changing course when it is least expected", according to Marcel Thieliant, senior Japan economist at research firm Capital Economics.
The decision followed data released Friday morning which showed Japan's inflation rate at 0.5 per cent in 2015, way below the central bank’s 2.0 per cent target. The core consumer price index, which includes oil products but excludes volatile fresh food prices, nudged up 0.1 per cent in December from a year earlier, unchanged from the previous month.
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